Investing.com -- Central and Eastern European (CEE) stocks have rallied this year, outperforming broader emerging markets, and Goldman Sachs believes they could see further gains if policy uncertainty continues to decline.
"The remarkable shift in Europe’s fiscal policy and optimism around a potential Ukraine peace deal has propelled a sharp rally in EU-exposed equities," Goldman Sachs analysts wrote.
CEE equities (MXME) have climbed 30% year-to-date, far outpacing the 7% rise in the broader EM index. Markets like Poland, Greece, and Czechia have gained between 20% and 40% this year, primarily driven by a re-rating of their price-to-earnings multiples.
While Goldman has modestly raised its EPS forecasts for the region, it notes that current market pricing appears to have "run ahead of our 2025 macro baseline expectations."
Investors are said to be factoring in a 1.4% Euro area GDP growth rate over the next 12 months, compared to Goldman’s estimates of 0.8%/1.3%/1.6% for 2025-27.
However, the bank says CEE equities remain among the cheapest in emerging markets, trading at a 35% discount to MSCI EM, compared to their historical 10% discount, suggesting potential upside if economic and policy conditions continue to improve.
Goldman is adjusting its country allocations, staying marketweight on Turkey and Poland, moving to neutral on Czechia, and downgrading South Africa to marketweight.
The firm also highlights thematic investment opportunities, such as Turkish industrials, Polish and Turkish miners, and Hungarian energy companies, which could benefit from Europe’s evolving growth trajectory.
While near-term risks like higher tariffs persist, Goldman Sachs sees Europe’s improving growth prospects, potential peace in Ukraine, and a slowing U.S. economy as key drivers of continued CEE outperformance.